How Innovative Is China?

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A few years ago, China overtook the U.S. and other innovative countries in terms of patent applications. More recently, it also became the leader in patent grants. But does this mean China is now the world leader in innovation? A recent Economic Synopses essay explores this idea.

Economist Ana Maria Santacreu and Senior Research Associate Heting Zhu noted that the number of patent applications is imperfect for measuring innovation, as it doesn’t account for quality.

“To assess whether these trends imply that China is becoming an innovation leader, we need to look beyond the number of patents that China files through patent offices and evaluate their quality,” the authors wrote.

Santacreu and Zhu examined patent quality from three angles:

1. Patent grants, as approval requirements are typically higher than application requirements
2. Patent categories, which include highly innovative “invention” patents and lower-quality “utility model” and “design” patents
3. International patent applications, which can signal higher-quality intellectual property

China had more patents granted than Japan, the U.S., Germany or South Korea in 2015 and 2016. However, its ratio of patents granted to patent applications was the lowest of the countries studied.

Between 2000 and 2016, 23.4 percent of patent applications in China were granted, notably lower than the ratios for the other countries:

• 50.5 percent in Japan
• 45.5 percent in South Korea
• 44.9 percent in the U.S.
• 43.5 percent in Germany

“Therefore, despite the significant increase in the number of patents granted, China still lags behind other innovative countries in its ‘success’ ratio,” Santacreu and Zhu wrote. The authors pointed out that the standards to grant a patent differ across patent offices. In this case, if the patent office in China were more willing to grant patents than the patent office in the U.S., looking at patent grants would not be indicative of the quality of the patent.

Over the period 2000-16, China’s higher-quality invention patents accounted for only 19.3 percent of the total grants, compared with 44.5 percent for utility model patents and 36.2 percent for design patents.

“These numbers imply that the actual technological improvement in China is not significant compared with its skyrocketing number of patent applications,” Santacreu and Zhu noted.

The authors also noted that China lags behind other innovation leaders in terms of patents filed and granted abroad. They illustrated this difference by contrasting China with the U.S.

In 2016, 4.2 percent of China’s patent applications were filed overseas, and 6.3 percent of the total patents were granted in foreign countries. The U.S., on the other hand, saw 43.4 percent of its patent applications filed overseas, and 48.1 percent of the total patents were granted in foreign countries.

“One explanation could be that the United States has a larger incentive to protect its intellectual properties abroad compared with China,” Santacreu and Zhu wrote. “Another explanation could be that many Chinese patent applications could not withstand the international evaluation because of the lower quality of its patents.”

The authors concluded that China still has room for improvement, though it is quickly catching up to global leaders in innovation. “If China sustains its large innovation investment and shifts its focus from quantity to quality, together with an improvement in intellectual property rights, the likelihood of becoming one of the next innovation leaders could be much higher,” they wrote.

¹ The authors pointed out that the standards to grant a patent differ across patent offices. In this case, if the patent office in China were more willing to grant patents than the patent office in the U.S., looking at patent grants would not be indicative of the quality of the patent.

• Economic Synopses: What Does China’s Rise in Patents Mean? A Look at Quality vs. Quantity
• On the Economy: Has China Overtaken the U.S. in Terms of Innovation?
• On the Economy: The New World Leader in Innovation